FTSE In The Red As Trade Tensions Simmer

With US markets closed for Independence day, the FTSE struggled for inspiration. The UK index looked lacklustre throughout the session, languishing around 0.3% lower. A slightly stronger pound and persistent trade concerns weighing on sentiment has prevented the FTSE from making any meaningful move higher.

The pound moved northwards versus the dollar after a hattrick of positive prints for pmi data. After manufacturing and construction pmi’s surprised to the upside earlier in the week, today was the turn of the service sector. 

Activity in the UK’s dominant service sector grew more than expected in June, hitting 55.1 versus forecasts of 54. This is the strongest level of growth experienced in the sector since October 2017 and supports the BoE theory that the UK economy is expected to pick up in the second quarter, after a sluggish start to the year. 

Given that services account for around 80% of economic activity, economic growth in the second quarter in the region of 0.4% could be highly likely.

BoE to hike rates?

The hattrick of strong readings, in addition to the improved Q1 GDP reading last week, has boosted optimism that the central bank could be persuaded to raise rates when they meet later this month. As a result, the pound moved higher. 

However, with Theresa May and her Brexit cabinet meeting at the Chequers this weekend in an attempt to come to an agreement over the EU- UK post Brexit relationship, Brexit issues are still front and central for pound traders, which means any pound gains could be limited.

Sainsbury jumps 3.1%

Sainsbury surged to the top of the FTSE gainers board after investors shrugged off slowing sales growth, focusing instead on developments of the merger with Asda. Like for like sales rose by 0.2%, less than the 0.9% of the previous quarter. 

Today’s weaker sales figures highlight Sainsbury’s need to go ahead with the Asda merger and with the financing package now agreed investors are starting to get excited.

Looking ahead

With the US markets closed, investors are starting to focus their attention on tomorrow’s economic calendar with FOMC minutes under the spotlight. Broadly speaking, we are expecting to see upbeat discussions over the health of the US economy. 

However, the markets could get spooked by discussions by the Fed covering the impact of any potential trade war, just a day before the trade tariffs are set to begin.